MATH MODEL

GDP Growth Rate = f (Consumption, FDI, Government)

ECONOMETRICS MODEL

GDP Growth Rate i = β0 + β1ln(Consumption)i+ β2ln(FDI)i +β3ln(Government)i+ ui

GR i=β 0 + β1 ln C i +β 2 ln I i + β 3 ln G i +ε i

Which;

GR = GDP Growth Rate

C = Household Consumption Expenditure

I = FDI

G = Government Expenditure
 Estimated Model
¿

GRi =β + β C + β I + β G
¿ ¿ ¿¿ ¿

GR 0 1 i
i
2 i 3 i

 Β1(Consumption)i = +ve

 Β2(FDI)I = +ve

 Β3(Government)i = -ve
 Ramsey RESET Test

H0: β = β =0
4 5

H a : At least one of the β’s is not zero

 : 0.05
TS: F = 0.5084

CV : F0.05, 3,122  3.95

Since TS lie on acceptance region, therefore we accept H 0 . Thus, we have no

specification error and our model is correctly specified.
 MULTICOLLINEARITY
Correlation Coefficients

 In Correlation Coefficients, we discover that our model does have the

serious multicollinearity problem. This is because, by using the
correlation coefficients, we found that all the figures are more than 0.80.
Thus, it indicates that our model does have serious multicollinearity
problem.

Auxiliary Regression
 SERIAL CORRELATION DURBIN WATSON d-TEST

 In Durbin-Watson d test, after we run the regression in e-views, we found

that the Durbin-Watson stat shows the value of 1.852672. We had used
this value to test whether our model has the problem of first order serial
correlation or no. Thus, it lies on the no serial correlation area. This can
be shown in the figure below:
Ha:
There is no first order serial correlation

There is first order serial correlation

α :0 . 05
TS: d = 1.852672

CV :dl=1.61 ,du=1 .74 4-dl=2.39

4-du=2.26

Since d value in TS is between du and 4-dl, it fall on acceptance region.

Therefore, there is no first order serial correlation.

 Breusch-Godfrey LM Test

 Test the significance of AR (2)

H0: δ =δ =0
4 5

H
Ata : least one of the ’s is not zero
α :0 . 05
TS : F = 2.4259
CV : F 0.05,3 ,122 =3.95

 Result: Accept H 0 the F-statistic is smaller than the CV and fall in

since
the acceptance region. Thus, there is no serial correlation.
 Heteroscedasticity (Park Test)

H0: γ =0
1
H : γ ≠0
a 1

α=0 . 05

t∗¿ 0 . 471984
1 . 980
CV = =0 . 99
2
 Result: Accept Ho since the value of the test statistics is lower than the
critical value. So, it has no effect on the dependant variable.
H0: γ =0
1
H : γ ≠0
a 1

α=0 . 05

t∗¿±0 .6973

1 . 980
CV = =0 . 99
2

 Result: Accept Ho since the value of the test statistics is lower than the
critical value. So, it has no effect on the dependant variable.
 H0: γ =0
1
H : γ ≠0
a 1

α=0 . 05
t∗¿ 0 .3088
1 . 980
CV = =0 . 99
2

 Result: Accept Ho since the value of the test statistics is lower than the
critical value. So, it has no effect on the dependant variable.
White Test

Ho: Homoscedesticity

Ha: Heteroscedesticity

A: 0.05
P-value=0.6471

TS: X^2= nR^2= 6.904353

CV: F= 7.815

 Result: accept Ho since the test statistics value is lower than the critical
value. So it is homoscedesticity.

Conclusion

 Multicollinearity

 No specification error

 No serial correlation

 It is homoscedesticity